<b>Vandana Gombar:</b> The three themes in energy

New financing, more auctions and some risks are the talking points

Following the money is a good way to track what is really happening in any industry, and there was an interesting development over the weekend: Some of the wealthiest people in the world announced a $1-billion investment fund. “Our goal is to build companies that will help deliver the next generation of reliable, affordable and emissions-free energy to the world,” said Microsoft’s Bill Gates in a statement. Investors in the so-called Breakthrough Energy Ventures fund, which will offer patient capital, include Amazon’s Jeff Bezos, Virgin group’s Richard Branson, Jack Ma of Alibaba and Prince Alwaleed Bin Talal, the founder of Kingdom Holding.

Gates is among the group of people who believes the world needs an energy miracle. The counter view is that we are already living through one, with solar and wind power becoming increasingly competitive with power from traditional sources such as coal and gas. Either way, we can expect funding from new sources getting into newer areas in the clean energy value chain, even as growth continues in conventional solar and wind plants. 

Expect to hear more about corporate procurement of renewable energy, as a major milestone is crossed next year. The world’s biggest corporate buyer of renewable energy, Google, expects to buy enough clean power in 2017 to meet or exceed all its consumption. Apple, which also seeks to power itself completely with clean energy, announced an agreement with the world’s largest wind turbine maker, Xinjiang Goldwind, last week whereby it would hold a 30 per cent stake in four project companies of Goldwind. Gary Demasi, Google’s director of global infrastructure and energy, said: “I didn’t think it would happen so fast. We’ve seen prices come down precipitously, which has helped us ramp up.”

The introduction of competitive bidding for projects is partly the reason for competitive prices, as is the advance of technology. Another large renewables market, Japan, will join the quest for competitive renewable energy prices by embracing auctions of projects, instead of offering fixed incentive tariffs. The first auction is slated for 2017. Various countries in South-east Asia have taken to the auctioning path in the last few months; this allows for more generation capacity to be installed with the same outlay of funds. 

Bloomberg New Energy Finance expects clean energy investment in 2016 to be less than its 2015 record of $349 billion, though installations will be higher than that of last year, as the same money now buys more capacity. India is set to be the world’s fourth-largest solar market this year after China, the US and Japan.

India’s cumulative solar capacity is nearing 9 gigawatts, with the highest installations in Tamil Nadu (1.6 Gw), Rajasthan (1.3 Gw) and Gujarat (1.1 Gw). Wind power generation capacity has surpassed 28 gigawatts, with Tamil Nadu leading again (7.7 Gw), followed by Maharashtra (4.7 Gw) and Gujarat (4.3 Gw).

Global solar, onshore wind installations (Gw)

In 2017, the impact of the withdrawal of high denomination notes, as well as the introduction of a comprehensive goods and services tax, will weigh on the country’s clean energy industry.  Power demand, or power prices for that matter, cannot be taken for granted. And there are risks associated with rapidly falling price curves. “A solar project done three years back is honestly going to be a challenge today because, if it is in India, at some stage somebody will question: Why should that subsidy continue?” the president of the Shanghai-headquartered New Development Bank, popularly known as the BRICS Bank, told Bloomberg New Energy Finance in an interview last month. The likely upsides in 2017 could be lower cost of funds, tempered land prices and greater ease of doing business.

The author is editor, Global Policy, for Bloomberg New Energy Finance; vgombar@bloomberg.net